Normal distribution
The bell-shaped pattern you get when many small, random influences add up: most values near the average, fewer and fewer further away, both sides alike.
In plain English
A bell curve is fully described by its average and its standard deviation. About 68% of values fall within 1 standard deviation of the average, about 95% within 2 and about 99.7% within 3. Lopsided data such as incomes, and data with frequent extremes such as market returns, do not follow it.
Uncle Gary explains
No pint is ever exactly 16 ounces: a bit more foam, a tilted glass, a distracted barman. Pour a thousand of them and the sizes form a bell. Uncle Gary remains convinced that his are all in the left half.
Why it matters for your money
Large market moves happen far more often than a bell curve predicts. Using it to judge how rare a crash is leads to nasty surprises.
Where we tested it
- Lesson 5: The Bell Curve, Explained at the Bar
- Lesson 17: The Central Limit Theorem: Why Averages Become Bell Curves
Related terms
All glossary terms. Educational content, not financial advice.